South Korea's financial regulator said on Thursday authorities plan to loosen stock short-selling rules for retail investors, while tightening rules for institutional and foreign investors, to promote a "level playing field" in the market.
President Yoon Suk Yeol's government introduced the controversial ban on short selling in the stock market this month.
The Financial Services Commission (FSC) said in a statement it would lower the ratio of cash required as collateral for retail investors to borrow stocks to 105%, down from the current 120%, to match the ratio for institutional investors.
For institutional investors, a new cap of a maximum 90 days will be imposed on borrowing of stocks for short selling, in line with retail investors, according to the statement.
The FSC announced the measures, along with rules to prevent illegal trades, after a meeting with other financial authorities and the ruling party to prepare regulatory changes for short selling in the stock market.
The ban on short selling of stocks will stay until there is enough improvement in regulations, FSC Vice Chairman Kim So-young was quoted by local media as saying after the meeting.
"Fair rules sound good, but actually, there was a reason why retail investors were under stricter rules - protection," said Huh Jae-hwan, an analyst at Eugene Investment Securities.
"I'm not sure retail investors will really benefit, because short-selling may increase more after retail investors are allowed to short sell stocks just as institutions do," Huh said.
Retail investors have welcomed the short-selling ban, arguing the practice has only worsened price swings by allowing big players to bet on market declines.
However, analysts say the ban has made the market less attractive, denying investors options to hedge their risks and reducing liquidity and price discovery. They also accuse the government of populist economic policies.
Retail investors have become a key voting bloc in recent years, with retail stock trading accounts doubling since 2017 to about 14 million and about one in every five Koreans holding an account.
More than 50,000 South Koreans have signed a petition for a temporary short-selling ban in recent months.
The measures proposed on Thursday will be finalised in order to go through the legislative process after more public and parliamentary discussions, the FSC said.
